If Obama Thinks the Job of Debt Reduction is Nearly Done, He Should Look at this Chart

One thing you won’t hear when President Obama delivers his State of the Union address Tuesday: An ambitious new plan to rein in the debt.

In recent days, the White House has pressed the message that, if policymakers can agree on a strategy for replacing across-the-board spending cuts set to hit next month, the president will pretty much have achieved his debt-reduction goals.

“Over the last few years, Democrats and Republicans have come together and cut our deficit [over the next decade] by more than $2.5 trillion through a balanced mix of spending cuts and higher tax rates for the wealthiest Americans. That’s more than halfway towards the $4 trillion in deficit reduction that economists and elected officials from both parties say we need to stabilize our debt,” Obama said during his weekend radio address.

If the current laws that govern federal taxes and spending do not change, the budget deficit will shrink this year to $845 billion, or 5.3 percent of gross domestic product (GDP), its smallest size since 2008. In CBO’s baseline projections, deficits continue to shrink over the next few years, falling to 2.4 percent of GDP by 2015.

Deficits are projected to increase later in the coming decade, however, because of the pressures of an aging population, rising health care costs, an expansion of federal subsidies for health insurance, and growing interest payments on federal debt. As a result, federal debt held by the public is projected to remain historically high relative to the size of the economy for the next decade. By 2023, if current laws remain in place, debt will equal 77 percent of GDP and be on an upward path, CBO projects

Such high and rising debt would have serious negative consequences: When interest rates rose to more normal levels, federal spending on interest payments would increase substantially. Moreover, because federal borrowing reduces national saving, the capital stock would be smaller and total wages would be lower than they would be if the debt was reduced. In addition, lawmakers would have less flexibility than they might ordinarily to use tax and spending policies to respond to unexpected challenges. Finally, such a large debt would increase the risk of a fiscal crisis, during which investors would lose so much confidence in the government’s ability to manage its budget that the government would be unable to borrow at affordable rates.

It looks like President Obama will leave his successor at huge fiscal problem to deal with.

This is where we need to educate the idiots, both in the press and in the electorate.

David Frum made a big deal of the fact that economists see the deficit declining. But deficit reduction is not the same as debt reduction.

Deficits are the difference between income and outlays. A 4% reduction in the deficit for a fiscal year simply means that we will continue to borrow 38¢ for every dollar we spend and not 40¢. If the former is the problem the latter is not the answer.

The debt is the accumulation of deficits, not a synonym for it. The debt and the servicing there of is never, ever, ev-ah, going to be fixed with just reducing or slowing down the accumulation of new debt.

Here’s what’s going to happen. Write it down, and refer back to it in a few years:

Obama will leave this debt time bomb for his successor. When it explodes, the press will all say that Obama’s successors have squandered his legacy of fiscal responsibility. Everyone will believe it, with the same level of unthinking acceptance they give the proposition that Franklin Roosevelt saved America from the Great Depression.

A “cut” of 2.5 trillion over 10 years, when you’re accruing new debt at a pace of at minimum 1 trillion per year, is not cutting the debt, or the deficit. It is waving at both the debt and the deficit, sadly, as they rocket past you on a trip to the moon.

There’s a reason why journalists become journalists. They simply cannot do any math, whatsoever. If somebody does it for them, say, for instance, like a politician, then boom! Job’s done! Home at 5:00 PM. What’s for dinner?

At some level, it’s not incompetence, it’s political. Any editor who still calls him or herself by that name, and allows garbage to issue out onto their dwindling broadsheets, should just start crying now and pounding the table, because they’re going to get laid off like the rest of the droolcup-sporting ace reporters they’ve been coddling for decades.

Enjoy the tear-streaked drive home afterwards. I hope small children see you crying and laugh at you.

I have been beginning to question my sanity. I see deficits, that if the Govt. were using the same accounting standards they make us use, would run $5-7ish Trillion per year. Govt. publicised debt is 6 times revenues and unfunded liabilities are many multiples of that. The Fed is buying 70% of Treasury debt to keep the Govt. from going belly up in a heartbeat. We appear to be way beyond the tipping point.

Yet the administration, much of Congress and the MSM simply do not see this and denigrate anyone who even approaches my vision of our situation. I’ve been wondering if there is something fundamentally wrong with me – time will tell.

Grade school arithmetic and 40 years in business tell me that we have a problem that is horrendous. Why can’t these folks see this?

To make matters worse, you should flatly disbelieve the CBO’s projection of future deficits. The CBO is forced to essentially draw a trendline from today’s situation using assumptions about growth and government spending that are totally unrealistic. Go back to say 2009 and look at what the CBO predicted this year’s deficit would be.

My prediction: Next year’s deficit will again be over a trillion dollars. And probably the year after that. In the meantime, a ‘sustainable’ deficit is one in which the size of the deficit is smaller than the growth in GDP, and in an era where GDP is growing from 0-1% per year, that means just about any deficit will increase the debt in real terms.

It’s all Kabuki theater meant to distract the public from the reality that the government is on a path to spend them into bankruptcy.

Grade school arithmetic and 40 years in business tell me that we have a problem that is horrendous. Why can’t these folks see this? · 0 minutes ago

My guess is because the impacts felt on the individual are small, or the individual can’t put 2 + 2 together and realize that he’s been unemployed for a year because the economy’s in the tank, simply due to massive levels of unprecedented spending and debt accumulation.

It’s hard to draw a line between those two things for some people, but that’s what it is. It’s also harder to draw that line when one of the people responsible for this trainwreck does everything possible to make sure your unemployment benefits are extended for 2 years – so why worry too much about root cause? It’s easier to blame somebody else, say, a Romney, than it is to blame the guy cutting you a check.

When does what’s happening rise to such a level that someone might be tempted to call it enslavement?

(cont): If half the country isn’t working, and much of that half is drawing some kind of federal outlay, then the half that does work is spending something like 1/4 to 1/3 of their work-year providing benefits that the gov’t distributes. This means that the recipients are more than likely to vote for the guy who promises them more of the same – more money, from someone else, a “rich” guy.

Well, we are the rich. Those of us who work 50 hours per week on average, sometimes a lot more, we travel for work, we eat lousy danish from a coffee bar at whatever hotel we wake up in, we spend less time with family and friends than the person who’s taking our money, and…well, you get the idea.

And we couldn’t get enough Republicans off their cans to vote for Romney? Looks like we’re retiring our national warship, USS Enterprise, for an EU-esque design: The USS Entitlement.